Second short-seller makes allegations against Silvercorp

TORONTO — Silvercorp Metals Inc. is under attack again, this time by one of the highest-profile short-sellers of Chinese companies. However, this entity is almost as much of a mystery as the anonymous letter-writer who accused the miner of fraud two weeks ago.

Shares of Vancouver-based Silvercorp plunged $1.58, or 20%, to $6.20 on the Toronto Stock Exchange Tuesday after the website Alfredlittle.com posted a detailed report suggesting production and resources at the company’s flagship Ying mine in China are far lower than reported. It claims it even collected rock samples that fell off the company’s trucks to draw its conclusions.

Silvercorp dismissed the allegations as baseless, but they could make it even more difficult for the embattled firm to clear its name. “We have nothing to hide,” industrial relations manager Laurenn Russell said.

Alfred Little has become a major thorn in the side of Chinese companies listed on North American exchanges, driving down the share prices of many of them with allegations of fraud.

Unlike short-seller Carson Block of Muddy Waters LLC, “Alfred” does not exist. Rather, it is a loosely connected group of consultants in China and North America that publish the reports, and claim to profit “only from the truth.”

“It’s a brand name rather than an individual,” said John Bird, a Texas-based short-seller. “They’ve done some extraordinarily good work.”

Sources said Alfred Little began as an outgrowth of research by a consultancy called the International Financial Research & Analysis Group.

As the short-selling of Chinese companies became big business last summer, researchers started posting anonymous reports on Alfredlittle.com. A U.S. businessman named Simon Moore told Bloomberg News that he is editor of the site.

The site used to circulate a fake biography of “Mr. Little,” but that was dropped.

Alfred Little has waged successful fights against companies such as Puda Coal Inc. (the chairman resigned after being accused of misappropriating assets), and China Integrated Energy Inc. (trading was halted after Alfred Little compiled a video showing minimal activity at the company’s plant, except for when it held an investor tour).

There has been retaliation. A company called Deer Consumer Products Inc. is actually fighting a legal battle against the fictitious Mr. Little in an attempt to expose alleged manipulation of its stock.

That is precisely what Silvercorp thinks is going on. Ms. Russell noted that the short position on Silvercorp shares is traditionally about 1.5% of the total. It jumped to 8% in June after Muddy Waters accused Sino-Forest of fraud, and has grown “exponentially” since then to about 25 million shares (more than 14%).

“When you have that sort of thing going on, it’s just so obvious there’s something more to the story that has nothing to do with the company,” she said.

The British Columbia Securities Commission was already trying to determine the identity of the anonymous short seller who accused Silvercorp of fraud two weeks ago (while also looking into the allegations themselves). Now its investigation will likely expand to cover the Alfred Little report.

Ms. Russell said that Silvercorp may not respond at all to the Alfred Little allegations, as they are very similar to the ones in the anonymous letter, and the company has already posted many documents on its website to try and refute those claims.